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Local Government Consolidation Is not a Panacea

Assistant Director, L. Charles Hilton Jr. Center for the Study of Economic Prosperity and Individual Opportunity, Florida State University

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Residents and officials of city governments that are experiencing adversity often consider government consolidation as a cure. The Chamber of Commerce in Tallahassee, Florida’s state capital, recently announced that it will fund a study to examine city-county consolidation in light of a survey that reported a general mistrust of government.

Supporters of consolidation claim that it makes government more efficient by eliminating the duplication of services and fosters economic growth by facilitating regional planning. Yet despite supporters’ hopes, consolidation is usually not the panacea they envision.

The pros and cons of local government consolidation have long been debated by policy makers and academics. Supporters of consolidated local government typically make arguments that support regional urban planning, or regionalism, more broadly.

In his 1972 book, “Fiscal Federalism,” economist Wallace Oates lays out a theory of government centralization based on the degree of different tastes people have about government services and the presence and degree of congestion, economies of scale and spillovers. Arguments for consolidation assume that the latter two—economies of scale and spillovers—dominate concerns about congestion and different tastes.

Economies of scale is the idea that larger organizations can do things more efficiently. Since local governments provide many of the same services—police and fire protection, schools—eliminating this duplication and creating one larger government could lower the cost of these services. After all, do we really need a county sheriff’s office and a city police department when they could instead share facilities, support staff, and other overhead?

While the theory makes some sense, there is little evidence that county-city consolidation consistently lowers government expenditures. Instead, there’s evidence that improved government processes, not consolidation per se, are the real driver of government efficiency.

In fact, another study that reviews the literature notes that when there are more governments—cities, counties, townships—within a given area, there is less government spending on average. A common explanation for this result is that governments in proximity to one another compete for residents and firms and as a result operate more efficiently.

Spillovers occur when local government polices affect nearby governments. For example, the quality of a city’s infrastructure can impact nearby cities since many roads and public transit routes cross political boundaries. Supporters argue that consolidated governments can reduce such spillovers by developing one infrastructure plan for the entire area.

More broadly, coordinated plans of all types are one of the purported benefits of regionalism: Since many local government goods and services crisscross multiple jurisdictions, there should be one overarching authority with final decision power. Fans of regionalism worry that without comprehensive, forward-looking plans that are consistent across localities, effective growth management will be difficult and economic growth will suffer.

However, the fears of government fragmentation undermining economic growth appear to be overblown. With respect to city-county consolidation specifically, there is little evidence that it improves subsequent economic growth.

Finally, some supporters of government consolidation maintain that it reduces racial and income segregation as well as urban sprawl. Again, the evidence for these contentions is mixed, though there’s stronger evidence that more consolidation leads to less racial segregation and less urban sprawl. That said, other studies find that consolidation does little to promote equity and that consolidation or government reorganization in general has little effect on the average citizen.

A big reason consolidation has little effect in practice is that it’s rarely the overhaul supporters envision. Special purpose districts and school districts are often exempt from consolidation efforts, and concessions that limit personnel and department cuts hinder the expected cost savings and efficiency gains. Thus as with any large project, the difference between success or failure is in the details.

Another important cost of government consolidation that doesn’t receive enough attention is the elimination of experimentation that accompanies less competition. Municipal competition not only encourages the best use of known information, but it also incentivizes the discovery of new information.

This means that even if consolidation improved the efficiency of government in the short run—and the evidence suggests otherwise—it likely worsens it in the long run by reducing the experimentation that helps us develop better methods of providing public goods and services.

Of course, fragmentation has drawbacks, too. Local governments in the same metro area or state routinely try to outdo one another when it comes to handouts to specific firms (see battle over Amazon’s HQ2), and this type of zero-sum competition wastes resources. Consolidation could in theory eliminate this behavior, but other policies, such as a state-level rule preventing cities from offering firm-specific tax breaks, would have a similar effect while still maintaining the other benefits of municipal competition.

It’s understandable that struggling local governments would consider government consolidation. The theory has some appeal, and if done well it may provide some benefits. But overall, there’s little evidence that it significantly improves government efficiency or leads to better economic outcomes. It also reduces experimentation, which can hinder long-run improvements in the provision of government goods and services. City officials and residents should consider all of this before making any changes.

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